Building a Bakery Business

bakeryResearch shows that breakfast sales are on the rise and that means sales can be too for retailers who have solid bakery products and programs in place.

By Marilyn Odesser-Torpey, Associate Editor

Packaged Facts research firm estimated that restaurant breakfast sales reached $47 billion in 2013, up 5% from 2012. And the company predicted that those sales are likely to continue to rise more than 5% in both 2014 and 2015.

Five years ago, Friendly Express convenience stores introduced doughnuts and other products made by DeDe’s, a local bakery with a reputation for high quality, into some of its southeastern Georgia locations. The sweet treats went over so well that two years ago Friendly Express bought DeDe’s bakery and is now supplying freshly baked goods to 26 of its 40 locations.

“Back before we started featuring DeDe’s products we wanted to do something to build our morning trade,” said Friendly Express CEO Danny Smith. “We had tried bringing in a nationally branded doughnut, but were unhappy with the supplier’s inconsistent delivery schedule. Sometimes they would deliver so late that we would miss the morning trade entirely.”

DeDe’s doughnuts and other pastry items are baked at Friendly Express’s commissary in Hoboken, Ga., and delivered to the stores fresh Monday through Saturday in the middle of the night, so they can be on the shelves by 5 a.m., or at the latest 6 a.m.
The stores carry eight SKUs of DeDe’s branded bakery products, including “over-sized” doughnuts (“they’re about one-and-one-half times the size of a standard doughnut,” said Smith), cinnamon rolls and doughnut holes. Most days some additional seasonal items are also featured.

For Christmas, for example, the bakery made snowflake and star-shaped doughnuts. On Valentine’s Day, heart-shaped doughnuts are filled with pink cream and/or topped with pink frosting. During football season, doughnuts are frosted in team colors. And during hunting season, the stores carry doughnuts frosted in camouflage colors.  “These special doughnuts add color and excitement to the case,” Smith said.
Some stores will sell as many as eight or nine dozen doughnuts per day, others between four and five. Some stores have schools and other organizations that call in advance and order three or four dozen at a time.

Stores that sell the greater quantities merchandise their products in floor model cases. Stores that sell fewer quantities have countertop displays. In all of the stores, the doughnut displays are positioned front and center next to the coffee and fountain areas.

To get more production out of the bakery, the company has recently begun baking cookies. Displayed up at the front counter, they are quickly becoming a popular impulse purchase, both in the morning and throughout the day, he noted.

A $1.99 coffee and doughnut combo has done so well that Friendly Express is now bundling fountain drinks with the pastries. Two years ago, the chain also introduced a doughnut loyalty program (buy six, get the seventh free) that Smith said “does very well.”

“We don’t make a whole lot of money on doughnuts, but we get very good incremental sales on coffee and fountain drinks,” Smith explained. “It also makes our stores into a morning destination for a lot of people. They can get cigarettes and gas anywhere, but there aren’t many places where they can get a good cup of coffee and a freshly baked doughnut, too.”
Big Brand Business
Last April, Grand Island, Neb.-based Bosselman Cos. launched a partnership with Focus Brands, parent company of Cinnabon, to feature Cinnabon products in some of Bosselman’s 50 Pump & Pantry c-stores. According to Dustin Lofing, Bosselman’s executive director of fuel and hospitality, the company is the first c-store chain to become a Cinnabon franchisee and bake products on site.

By the end of 2013, Pump & Pantry had Cinnabon bakeries in 10 of its stores. Five additional bakeries are set to open in existing Pump & Pantry stores this year. Eventually, Bosselman plans to have between 20 and 25 Cinnabon bakeries in its stores.

“Most of our locations are rural, so we promote a hometown atmosphere in our stores and what could be more homey than the sight and smell of cinnamon buns baking?” Lofing said.

Because most Cinnabon retail stores are located in urban and suburban areas, Bosselman saw an opportunity to bring to its mostly rural customers a premium product they might not otherwise be able to get, he explained. A 66-year old family-owned business, Bosselman brought to Focus Brands a track record of consistent operations and strong local brand recognition of its own, Lofing noted.

In the stores, the Cinnabon bakeries are placed on the front counter next to the registers, so customers cannot miss the show and smell of the products as they come fresh from the oven. As a result, Lofing said, breakfast sales and, in fact, overall inside sales have gotten “a big boost.” In addition to breakfast, customers come throughout the day to buy the just-baked Cinnabon rolls or pick up grab-and-go packages of them that are always on display.

“We see many of the same customers almost every morning stopping in to fill up the car and grab their morning essentials—a cup of coffee and a Cinnabon,” he said.

Strong Bakery Outlook
Retail dollar sales of in-store bakery goods reached $13.4 billion in 2013, up from $12.8 billion in 2012, reported Packaged Facts. The in-house baked goods market has experienced a dollar sales increase every year since 2008, and Packaged Facts expects these gains to continue through 2017 and beyond.

La Crosse, Wis.-based Kwik Trip produces all of the old fashioned and cake doughnuts, muffins, Danish, cookies and other breakfast items they sell from scratch every day in the company’s proprietary bakery. About 40 SKUs of items are featured in the Kwik Trip bakery section, said Paul Servais, the company’s retail foodservice director.

Most of the products are delivered to the stores frozen three to four times a week, to be thawed and frosted as needed. Kwik Trip’s Glazers, raised yeast glazed doughnuts, are delivered fresh and ready to sell seven days a week.

Single items, which sell best in the morning, are merchandised in a six-foot display case with doors. Some individually prewrapped items are also available at the cash registers.

Tables in the bakery area are also stocked with multiple packs of cookies, muffins, Danish, brownies and other sweets, as well as the company’s signature Kwikery Bake Shoppe breads. The packaged items sell best during the afternoon, making bakery a profitable store category throughout the day, Servais said.

“Fresh baked items draw guests to our stores in the morning because they know they can get delicious bakery items with their breakfast beverage of choice,” he noted. “Plus, they can pick up treats for their coworkers in our fresh
packaged bakery section.”

The Most Important Meal
According to Packaged Facts research director David Sprinkle:
• Outperforming the lunch, dinner and snack dayparts, per capita spending on the breakfast daypart increased almost 8% during 2007-2012.
• Limited-service breakfast grew at more than double the rate (11%) of full-service breakfast (5%). 
• Limited-service restaurants account for two-thirds of total restaurant breakfast sales.
• The growth of limited-service breakfast is due to a mixture of consumer trade down, increasing limited-service breakfast availability and variety, and the needs of on-the-go consumers.
• Limited-service restaurants are also benefitting from menu item innovation hitting healthfulness, indulgence and quality notes, in addition to innovation in the tea and juice platform.
Foodservice Breakfast Trends in the U.S., 2nd Edition; Packaged Facts


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